Nestle pays $7.1 billion to market Starbucks' coffee

07 May 2018

It will not involve any of Starbucks' cafes or ready-to-drink products. In return, Nestle will have the right to market everything from Starbucks beans to Nespresso capsules, which it will be able to sell outside of Starbucks stores.

"This global coffee alliance will bring the Starbucks experience to the homes of millions more around the world through the reach and reputation of Nestlé", said Starbucks CEO Kevin Johnson in a statement released as part of the announcement. The investment company of Europe's billionaire Reimann family has spent more than $30 billion building a coffee empire by acquiring assets such as Keurig Green Mountain and Peet's.

Starbucks is a popular brand with younger customers, who have grown up with the brand, and are the demographic seeking out and embracing smaller brands. Bloomberg said that Nestle will put into use this initiative to get share buybacks, expecting 20 billion dollars by dividends and purchases by 2020.

The deal is subject to regulatory approval, and the companies say it should close this summer or early fall. Nestle saw the deal adding to earnings by 2019. Sales will be booked by Nestle, which will pay royalties to Starbucks.

The deal is Nestle's first tie-up with a major rival in coffee. "However, Nestle's leadership position is less secure than it once was".

Schneider has reversed Nestle's policy on roast-and-ground coffee, a category that the Swiss company began shunning decades ago as it considered it a commodity business with little value to add.

The agreement only covers Starbucks' packaged goods sold outside the U.S. company's stores.

Starbucks is rapidly expanding in China, which it expects to one day be its largest market.

"Compared to other companies, in other words, Starbucks is a bargain". The WSJ reported that the company's 2.4 percent organic growth past year was its weakest performance since, at least, the mid-90s, when the company first began tracking that metric.